Carrasco, an outspoken personality who was disliked by some board members and had trouble with some of his players, had been in the job since October 2010.
"I want to announce that today we have decided to step aside," Carrasco said referring to himself and his coaching staff.
He told a news conference that he felt a mixture of pain at leaving a club he loves and owes so much having begun his playing career there, coupled with the satisfaction of a job well done.
The 54-year-old former international midfielder thanked club president Ricardo Alarcon for his support in the face of opposition from other members of the board over his appointment.
"Our intention was always to unite, not divide, and we thought that with sporting achievements we could fix this," said Carrasco, who took over from the sacked Luis Gonzalez during the Apertura, first of two championship in the season.
"As this was not the case, we decided to free the president of all kinds of pressure from his fellow board members."
Carrasco espouses all out attack, his tactics often leaving his teams exposed at the back which was his undoing as Uruguay coach in 2004. However, much as he has preached his type of game, Nacional's championship victory was based more on a sound defence.
Nacional, one of Uruguay's Big Two clubs with Libertadores Cup finalists Penarol, won the Clausura championship and then beat Apertura winners Defensor Sporting in the final for the 2010/11 title.
"I feel great pain as a professional and a (Nacional) fan because this is the mutilation of a cycle that could have been very successful. I'm not leaving because Nacional is part of my life, it's my home and I hope this will be only a 'see you again soon'."
Carrasco refused to take questions from the floor.
Two of Nacional's leading players, young Uruguay central defender Sebastian Coates and striker Santiago "Morro" Garcia, are on the verge of good transfers abroad.
Garcia is set to join Atletico Paranaense in Brazil while Coates could move to Europa League winners Porto.
